SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the Quarterly Period Ended March 31, 1998
Commission file number 33-21281
WESTMED VENTURE PARTNERS 2, L.P.
===============================================================================
(Exact name of registrant as specified in its charter)
Delaware 13-3473015
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(State of organization) (I.R.S. Employer Identification No.)
CIBC Oppenheimer Tower, World Financial Center
New York, New York 10281
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 667-7000
Not applicable
================================================================================
Former name, former address and former fiscal year, if changed since last report
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
<PAGE>
WESTMED VENTURE PARTNERS 2, L.P.
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Balance Sheets as of March 31, 1998 (Unaudited) and December 31, 1997
Schedule of Portfolio Investments as of March 31, 1998 (Unaudited)
Statements of Operations for the Three Months Ended March 31, 1998 and 1997
(Unaudited)
Statements of Cash Flows for the Three Months Ended March 31, 1998 and 1997
(Unaudited)
Statement of Changes in Partners' Capital for the Three Months Ended March 31,
1998 (Unaudited)
Notes to Financial Statements (Unaudited)
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
Item 2. Changes in Securities.
Item 3. Defaults upon Senior Securities.
Item 4. Submission of Matters to a Vote of Security Holders.
Item 5. Other Information.
Item 6. Exhibits and Reports on Form 8-K.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
WESTMED VENTURE PARTNERS 2, L.P.
BALANCE SHEETS
<TABLE>
March 31, 1998 December 31,
(Unaudited) 1997
ASSETS
Portfolio investments at fair value (cost $10,246,467 at
<S> <C> <C> <C> <C> <C> <C> <C>
March 31, 1998 and $10,057,579 at December 31, 1997) $ 6,963,060 $ 6,828,199
Cash and cash equivalents 586,103 593,258
Receivable from security sold - 257,276
Accrued interest receivable 10,607 8,989
Prepaid expenses 22,572 36,722
--------------- ----------------
TOTAL ASSETS $ 7,582,342 $ 7,724,444
=============== ================
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and accrued expenses $ 47,223 $ 55,130
Due to Managing General Partner 48,402 48,733
Due to Independent General Partners 2,500 10,000
--------------- ----------------
Total liabilities 98,125 113,863
--------------- ----------------
Partners' Capital:
Managing General Partner 74,842 76,106
Limited Partners (38,727 Units) 7,409,375 7,534,475
--------------- ----------------
Total Partners' capital 7,484,217 7,610,581
--------------- ----------------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 7,582,342 $ 7,724,444
=============== ================
</TABLE>
See notes to financial statements.
<PAGE>
WESTMED VENTURE PARTNERS 2, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS (Unaudited)
March 31, 1998
Active Portfolio Investments:
<TABLE>
Initial Investment
Company / Position Date Cost Fair Value
Abtox, Inc.
<S><C> <C> <C> <C>
454,545 shares of Preferred Stock Mar. 1997 $ 1,060,600 $ 707,067
- -------------------------------------------------------------------------------------------------------------------------------
Gliatech, Inc.(A)(B)
104,210 shares of Common Stock Feb. 1992 801,429 1,263,546
- -------------------------------------------------------------------------------------------------------------------------------
Hepatix, Inc.*(C)
1,484,123 shares of Preferred Stock Jan. 1992 1,558,181 1,484,123
$356,190 Promissory Notes at 9.5% 377,776 377,776
Warrants to purchase 44,524 shares of Common Stock
at $1.60 per share, expiring 10/30/00 0 0
--------------- ---------------
1,935,957 1,861,899
- -------------------------------------------------------------------------------------------------------------------------------
Integramed America, Inc.(A)
211,672 shares of Common Stock Mar. 1989 2,322,426 449,803
- -------------------------------------------------------------------------------------------------------------------------------
KeraVision, Inc.(A)
68,728 shares of Common Stock Nov. 1992 530,300 549,824
- -------------------------------------------------------------------------------------------------------------------------------
La Jolla Pharmaceutical Company(A)
100,383 shares of Common Stock Nov. 1991 678,579 388,985
25,076 warrants to purchase 12,538 shares of Common
Stock at $6.00 per share, expiring 6/3/99 0 14,895
Warrant to purchase 5,015 shares of Common Stock
at $5.00 per share, expiring 6/3/99 0 0
--------------- ---------------
678,579 403,880
- -------------------------------------------------------------------------------------------------------------------------------
Sennes Drug Innovations, Inc.*
2,750,000 shares of Preferred Stock June 1993 1,175,579 293,895
412,500 shares of Common Stock 4,375 1,094
$39,976 10% Promissory Note 42,399 21,200
--------------- ---------------
1,222,353 316,189
- -------------------------------------------------------------------------------------------------------------------------------
Synaptic Pharmaceutical Corporation(A)
76,395 shares of Common Stock June 1991 627,470 974,036
- -------------------------------------------------------------------------------------------------------------------------------
Targeted Genetics, Inc.(A)(D)
225,395 shares of Common Stock June 1992 1,067,353 436,816
Totals from Active Portfolio Investments $ 10,246,467 $ 6,963,060
=============== ===============
</TABLE>
<PAGE>
WESTMED VENTURE PARTNERS 2, L.P.
SCHEDULE OF PORTFOLIO INVESTMENTS (Unaudited) - continued
March 31, 1998
SUPPLEMENTAL INFORMATION: LIQUIDATED PORTFOLIO INVESTMENTS(E)
<TABLE>
Cost Realized Loss Return
<S> <C> <C> <C>
Totals from Liquidated Portfolio Investments $ 6,595,960 $ (3,798,522) $ 2,797,438
=============== ================= ===============
Combined Combined
Unrealized and Fair Value
Cost Realized Loss and Return
Totals from Active and Liquidated Portfolio
Investments $ 16,842,427 $ (7,081,929) $ 9,760,498
=============== ================= ===============
</TABLE>
(A) Public company
(B) Subsequent to the end of the quarter, in April 1998, the Partnership sold
its remaining 104,210 shares of Gliatech, Inc. common stock for $1,656,467,
realizing a gain of $855,042.
(C) In January 1998, the Partnership made a $178,095 follow-on investment in
Hepatix, Inc., acquiring a 9.5% promissory note and a warrant to purchase
17,810 shares of common stock at $1.60 per share. The Partnership paid the
Managing General Partner a venture capital fee of $10,793 in connection
with this investment.
(D) On January 31, 1998, the Partnership's warrant to purchase 16,666 shares
of Targeted Genetics, Inc. common stock at $4.68 per share expired
unexercised.
(E) Amounts provided for "Supplemental Information: Liquidated Portfolio
Investments" are cumulative from inception through March 31, 1998.
* May be deemed an affiliated person of the Partnership as defined in the
Investment Company Act of 1940.
See notes to financial statements.
<PAGE>
WESTMED VENTURE PARTNERS 2, L.P.
STATEMENTS OF OPERATIONS (Unaudited)
For the Three Months Ended March 31,
<TABLE>
1998 1997
-------------- -------
INVESTMENT INCOME AND EXPENSES
Income:
<S> <C> <C>
Interest from short-term investments $ 7,195 $ 28,888
Interest income from portfolio investments 1,502 925
------------- ----------------
Total investment income 8,697 29,813
------------- ----------------
Expenses:
Management fee 37,609 42,450
Professional fees 20,784 19,003
Insurance expense 14,150 13,784
Mailing and printing 5,602 7,914
Independent General Partners' fees 2,500 2,500
Custodial fees 389 1,119
Miscellaneous - 250
------------- ----------------
Total investment expenses 81,034 87,020
------------- ----------------
NET INVESTMENT LOSS (72,337) (57,207)
Change in unrealized depreciation of investments (54,027) (99,676)
------------- ----------------
NET DECREASE IN NET ASSETS RESULTING
FROM OPERATIONS $ (126,364) $ (156,883)
============= ================
</TABLE>
See notes to financial statements.
<PAGE>
WESTMED VENTURE PARTNERS 2, L.P.
STATEMENTS OF CASH FLOWS (Unaudited)
For the Three Months Ended March 31,
<TABLE>
1998 1997
--------------- ---------
CASH FLOWS (USED FOR) PROVIDED FROM
OPERATING ACTIVITIES
<S> <C> <C>
Net investment loss $ (72,337) $ (57,207)
Adjustments to reconcile net investment loss to cash (used for) provided from
operating activities:
Decrease in accrued interest receivable and other assets 12,532 5,009
(Decrease) increase in payables (15,738) 54,934
-------------- ----------------
Cash (used for) provided from operating activities (75,543) 2,736
-------------- ----------------
CASH FLOWS PROVIDED FROM (USED FOR)
INVESTING ACTIVITIES
Proceeds from sale of portfolio investments 257,276 -
Cost of portfolio investments purchased (188,888) (1,060,600)
-------------- ----------------
Cash provided from (used for) investing activities 68,388 (1,060,600)
-------------- ----------------
CASH FLOWS USED FOR FINANCING ACTIVITIES
Cash distribution to Partners - (3,012,100)
-------------- ----------------
Decrease in cash and cash equivalents (7,155) (4,069,964)
Cash and cash equivalents at beginning of period 593,258 4,876,135
-------------- ----------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 586,103 $ 806,171
============== ================
</TABLE>
See notes to financial statements.
<PAGE>
WESTMED VENTURE PARTNERS 2, L.P.
STATEMENT OF CHANGES IN PARTNERS' CAPITAL (Unaudited)
For the Three Months Ended March 31, 1998
<TABLE>
Managing
General Limited
Partner Partners Total
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1997 $ 76,106 $ 7,534,475 $ 7,610,581
Net decrease in net assets resulting
from operations (1,264) (125,100) (126,364)
------------ --------------- ----------------
Balance at March 31, 1998 $ 74,842 $ 7,409,375(A) $ 7,484,217
============ =============== ================
</TABLE>
(A) The net asset value per unit of limited partnership interest, including an
assumed allocation of net unrealized depreciation of investments, was $191
at March 31, 1998. Such per unit amount is based on average allocations to
all limited partners and does not reflect specific limited partner
allocations, which are determined by the original closing date associated
with the units of limited partnership interest held by each limited
partner.
See notes to financial statements.
<PAGE>
WESTMED VENTURE PARTNERS 2, L.P.
NOTES TO FINANCIAL STATEMENTS (Unaudited)
1. Organization and Purpose
WestMed Venture Partners 2, L.P. (the "Partnership") was formed under Delaware
law in April 1988. The Partnership operates as a business development company
under the Investment Company Act of 1940, as amended. The Partnership is a
closed-end partnership and accordingly its units of limited partnership interest
("Units") are not redeemable by the Partnership. A total of 38,727 Units were
sold to limited partners ("Limited Partners" and together with the Managing
General Partner (as hereinafter defined), the "Partners") at $500 per Unit.
The general partners of the Partnership include two individuals (the
"Independent General Partners") and the managing general partner, WestMed
Venture Management 2, L.P., a Delaware limited partnership (the "Managing
General Partner" and collectively with the Independent General Partners, the
"General Partners"). The general partner of the Managing General Partner is
Medical Venture Holdings, Inc., a Delaware corporation affiliated with CIBC
Oppenheimer Corp. ("Opco") (formerly Oppenheimer & Co., Inc.). Opco is the
successor corporation to Oppenheimer & Co., Inc., following the acquisition and
subsequent merger of Oppenheimer & Co., Inc. and CIBC Wood Gundy Corp. in
November 1997. Opco is a subsidiary of Canadian Imperial Bank of Commerce. The
limited partners of the Managing General Partner are Opco, MVP Holdings, Inc.
and BSW, Inc., a Delaware corporation owned by John A. Balkoski, Philippe L.
Sommer and Howard S. Wachtler. Alsacia Venture Management, Inc. (the
"Sub-Manager"), a corporation controlled by Philippe L. Sommer, serves as the
sub-manager of the Partnership pursuant to a sub-management agreement between
the Managing General Partner and the Sub-Manager. The Sub-Manager has been
retained by the Managing General Partner to assist the Managing General Partner
in the performance of certain of its duties to the Partnership.
The Partnership's objective is to achieve long-term capital appreciation from
its portfolio of venture capital investments, consisting of companies engaged in
the health care industry. The Partnership is scheduled to terminate on December
31, 1998. However, the General Partners can extend the term for up to two
additional two-year periods, if they determine that such extensions are in the
best interest of the Partnership.
2. Summary of Significant Accounting Policies
Valuation of Investments - Portfolio investments are carried at fair value as
determined quarterly by the Managing General Partner under the supervision of
the Independent General Partners. The fair value of publicly-held portfolio
securities is adjusted to the closing public market price for the last trading
day of the accounting period discounted for sales restrictions. Factors
considered in the determination of an appropriate discount include, underwriter
lock-up or Rule 144 trading restrictions, insider status where the Partnership
either has a representative serving on the board of directors of the portfolio
company under consideration or is greater than a 5% shareholder thereof, and
other liquidity factors such as the size of the Partnership's position in a
given company compared to the trading history of the public security.
Privately-held portfolio securities
<PAGE>
WESTMED VENTURE PARTNERS 2, L.P.
NOTES TO FINANCIAL STATEMENTS (Unaudited) - continued
are carried at cost until significant developments affecting the portfolio
company provide a basis for change in valuation. The fair value of private
securities is adjusted (i) to reflect meaningful third-party transactions in the
private market and (ii) to reflect significant progress or slippage in the
development of the company's business such that cost is no longer reflective of
fair value. As a venture capital investment fund, the Partnership's portfolio
investments involve a high degree of business and financial risk that can result
in substantial losses. The Managing General Partner considers such risks in
determining the fair value of the Partnership's portfolio investments.
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Investment Transactions - Investment transactions are recorded on the accrual
method. For portfolio investments, transactions are recorded on the date which
the Partnership obtains an enforceable right to demand the securities or payment
thereof. Realized gains and losses on investments sold are computed on a
specific identification basis.
Statements of Cash Flows - Cash and cash equivalents include short-term
interest-bearing investments in commercial paper and other money market
investments. The Partnership considers its interest-bearing cash account to be
cash equivalents.
Income Taxes - No provision for income taxes has been made since all income and
losses are allocable to the Partners for inclusion in their respective tax
returns. The Partnership's net assets for financial reporting purposes differ
from its net assets for tax purposes. Net unrealized depreciation of $3.3
million at March 31, 1998, which was recorded for financial statement purposes,
has not been recognized for tax purposes. Additionally, from inception to March
31, 1998, other timing differences totaling $2.2 million, primarily relating to
original sales commissions paid and other costs of selling the Units, have been
recorded on the Partnership's financial statements but have not yet been
deducted for tax purposes.
Reclassifications - Certain reclassifications were made to the prior period
financial statements in order to conform to the current period presentation.
3. Allocations of Partnership Profits and Losses
Pursuant to the Partnership's agreement of limited partnership, as amended (the
"Partnership Agreement"), the Partnership's net income and net realized gains
from all sources are allocated to all Partners, in proportion to their capital
contributions, until all Partners have been allocated an amount (the "Priority
Return") equal to 6% per annum, simple interest, on their total Adjusted
Invested Capital; i.e., original capital contributions reduced by previous
distributions. Thereafter, net income and net realized gains from venture
capital investments in
<PAGE>
WESTMED VENTURE PARTNERS 2, L.P.
NOTES TO FINANCIAL STATEMENTS (Unaudited) - continued
excess of the amount used to cover the Priority Return are allocated 20% to the
Managing General Partner and 80% to all Partners in proportion to their capital
contributions. Any net income from non-venture capital investments in excess of
the amount used to cover the Priority Return is allocated to all Partners in
proportion to their capital contributions. Realized losses are allocated to all
Partners in proportion to their capital contributions. However, if realized
gains had been previously allocated in the 80-20 ratio, then losses are
allocated in the reverse order in which profits were allocated. From its
inception to March 31, 1998, the Partnership had a $3.5 million net realized
loss from its venture capital investments, including $249,000 of interest and
other income from portfolio investments.
4. Related Party Transactions
Pursuant to the Partnership Agreement, the Managing General Partner is entitled
to receive a one-time venture capital fee equal to 5% of the gross proceeds from
the sale of Units. Such fee is incurred as portfolio investments are made in the
proportion of the cost of each portfolio investment to the net proceeds from the
sale of Units. Venture capital fees incurred are recorded as a cost of acquiring
the portfolio investment. The Partnership incurred venture capital fees of
$10,793 for the quarter ended March 31, 1998. Cumulative venture capital fees
incurred from inception to March 31, 1998 totaled $964,000.
Pursuant to a management agreement between the Partnership and the Managing
General Partner, the Managing General Partner is responsible for the management,
administrative and certain investment advisory services necessary for the
operation of the Partnership. For such services, the Managing General Partner
receives a management fee at the annual rate of 2% of the lesser of the net
assets of the Partnership or the net contributed capital of the Partnership;
i.e., gross capital contributions to the Partnership (net of selling commissions
and organizational expenses) reduced by capital distributed. Such fee is
determined and payable quarterly. The compensation of the Sub-Manager is paid
directly by the Managing General Partner.
For services rendered to the Partnership, each of the two Independent General
Partners receives a $5,000 annual fee and reimbursement for all out-of-pocket
expenses relating to attendance at meetings of the General Partners.
5. Litigation
On June 5, 1996, the Partnership and Philippe L. Sommer, among others, were
named in an action filed in Harris County, Texas by James Kelly and Norman L.
Sussman (the "Action"). The plaintiffs in the Action assert certain causes of
action against all defendants, including violations of the securities laws,
fraud, fraudulent inducement, civil conspiracy and wrongful sequestration. All
of the aforesaid causes of action arise out of the Partnership's investment,
with other venture capital funds, in Hepatix, Inc., a company founded to develop
and pursue approval of an extracorporeal liver assist device. The plaintiffs in
the Action are two of the original founders of Hepatix. The Action was
subsequently removed to Federal District Court in Houston and on October 15,
1996 a motion was made to dismiss the Action against the Partnership and Mr.
Sommer.
<PAGE>
WESTMED VENTURE PARTNERS 2, L.P.
NOTES TO FINANCIAL STATEMENTS (Unaudited) - continued
On January 29, 1998, the court dismissed all but four of the plaintiffs' counts.
The Action was then remanded back to State court. The remaining claims involve
allegations of breach of fiduciary duty, fraud and fraudulent inducement. The
Partnership and Mr. Sommer have filed a motion for summary judgment seeking to
dismiss all pending claims. That motion is still pending. The Partnership and
Mr. Sommer believe the remaining allegations are without merit and intend to
continue to vigorously contest the Action.
6. Classification of Investments
As of March 31, 1998, the Partnership's investments were categorized as follows:
<TABLE>
Percentage of
Type of Investments Cost Fair Value Net Assets*
- ------------------- ---------------- --------------- -----------
<S> <C> <C> <C>
Common Stock $ 6,031,932 $ 4,078,999 54.50%
Preferred Stock 3,794,360 2,485,085 33.20%
Debt Securities 420,175 398,976 5.33%
---------------- --------------- -------
Total $ 10,246,467 $ 6,963,060 93.03%
================ =============== ======
Country/Geographic Region
Eastern U.S. $ 2,949,896 $ 1,423,839 19.02%
Midwestern U.S. 1,862,029 1,970,613 26.33%
Western U.S. 4,212,189 3,252,419 43.46%
Southwestern U.S. 1,222,353 316,189 4.22%
---------------- --------------- -------
Total $ 10,246,467 $ 6,963,060 93.03%
================ =============== ======
Industry
Biotechnology $ 5,457,784 $ 4,101,534 54.80%
Medical Devices 2,466,257 2,411,723 32.22%
Medical Services 2,322,426 449,803 6.01%
---------------- --------------- -------
$ 10,246,467 $ 6,963,060 93.03%
================ =============== ======
</TABLE>
* Percentage of net assets is based on fair value.
7. Subsequent Event
During April 1998, the Partnership sold its remaining 104,210 shares of
Gliatech, Inc. common stock for $1,656,467, realizing a gain of $855,042.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Liquidity and Capital Resources
In January 1998, the Partnership invested $188,888 (including venture capital
fees totaling $10,793) in Hepatix, Inc., an existing portfolio company. From its
inception through March 31, 1998, the Partnership had invested an aggregate of
$16.8 million in eleven portfolio companies (including acquisition costs and
venture capital fees totaling $1.06 million), representing approximately 97% of
the original $17.3 million of net proceeds received from the offering of Units.
The Partnership will not invest in any new portfolio companies but may make
additional follow-on investments in existing companies as required.
As of March 31, 1998, the Partnership held $586,103 in cash and short-term
investments, including $449,668 in short-term securities with maturities of less
than one year and $136,435 in an interest-bearing cash account. For the three
months ended March 31, 1998, the Partnership earned $7,195 of interest from such
investments. Interest earned from short-term investments in future periods is
subject to fluctuations in short-term interest rates and changes in amounts
invested in such securities.
It is anticipated that funds needed to cover the Partnership's future operating
expenses and follow-on investments will be obtained from existing cash reserves,
interest from short-term investments and proceeds received from the sale of
portfolio investments.
Results of Operations
Investment Income and Expenses - For the three months ended March 31, 1998 and
1997, the Partnership had a net investment loss (investment income less
operating expenses) of $72,337 and $57,207, respectively. The $15,130 increase
in net investment loss for the 1998 period compared to the same period in 1997,
resulted from a $21,116 decrease in investment income, partially offset by a
$5,986 decrease in operating expenses for the 1998 period. The decrease in
investment income included a $21,693 decrease in interest income from short-term
investments, primarily related to the reduced balance of funds available for
such investments during the 1998 period as compared to the same period in 1997.
The reduction in operating expenses primarily resulted from a $4,841 decrease in
management fees, as discussed below.
Pursuant to a management agreement between the Partnership and the Managing
General Partner, the Managing General Partner is responsible for the management,
administrative and certain investment advisory services necessary for the
operation of the Partnership. For such services, the Managing General Partner
receives a management fee at the annual rate of 2% of the lesser of the net
assets of the Partnership or the net contributed capital of the Partnership;
i.e., gross capital contributions to the Partnership, net of selling commissions
and organizational expenses, reduced by capital distributed. Such fee is
determined and paid quarterly. For the three months ended March 31, 1998 and
1997, the management fee was $37,609 and $42,450, respectively. The decrease in
the management fee for the 1998 period as compared to the 1997 period reflects
the lower Partnership's net asset value as of March 31, 1998 compared to March
31, 1997. To the extent possible, the management fee and other operating
expenses are paid with funds provided from operations. Funds provided from
operations are obtained from interest received from short-term investments,
interest and dividend income from portfolio investments and proceeds from the
sale of portfolio investments.
Unrealized Gains and Losses and Changes in Unrealized Appreciation or
Depreciation of Portfolio Investments - For the three months ended March 31,
1998, the Partnership had a $54,027 net unrealized loss, resulting from a
$299,506 net upward revaluation of its publicly-traded securities, offset by a
$353,533 net downward revaluation of the Partnership's investment in Abtox,
Inc., a privately-held portfolio company. As a result, net unrealized
depreciation of investments increased by $54,027 for the three-month period.
For the three months ended March 31, 1997, the Partnership had a $99,676 net
unrealized loss resulting from the net downward revaluation of its
publicly-traded securities. As a result, net unrealized depreciation of
investments increased by $99,676 for the three-month period.
Net Assets - Changes to net assets resulting from operations is comprised of (i)
net realized gains and losses from operations and (ii) changes to net unrealized
appreciation or depreciation of portfolio investments.
As of March 31, 1998, the Partnership's net assets were $7,484,217, reflecting a
decrease of $126,364 from $7,610,581 as of December 31, 1997. This decrease
resulted from the $54,027 unrealized loss from investments and the $72,337 net
investment loss for the three-month period.
As of March 31, 1997, the Partnership's net assets were $8,166,938, reflecting a
decrease of $156,883 from $8,323,821 as of December 31, 1996. This decrease
resulted from the $99,676 unrealized loss from investments and the $57,207 net
investment loss for the three-month period.
As of March 31, 1998 and December 31, 1997, the net asset value per $500 Unit,
including an allocation of net unrealized depreciation of investments was $191
and $195, respectively. Such per Unit amounts are based on average allocations
to all Limited Partners and do not reflect specific Limited Partner allocations,
which are determined by the original closing date associated with the Units held
by each Limited Partner.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
On June 5, 1996, the Partnership and Philippe L. Sommer, among others, were
named in an action filed in Harris County, Texas by James Kelly and Norman L.
Sussman (the "Action"). The plaintiffs in the Action assert certain causes of
action against all defendants, including violations of the securities laws,
fraud, fraudulent inducement, civil conspiracy and wrongful sequestration. All
of the aforesaid causes of action arise out of the Partnership's investment,
with other venture capital funds, in Hepatix, Inc., a company founded to develop
and pursue approval of an extracorporeal liver assist device. The plaintiffs in
the Action are two of the original founders of Hepatix. The Action was
subsequently removed to Federal District Court in Houston and on October 15,
1996 a motion was made to dismiss the Action against the Partnership and Mr.
Sommer.
On January 29, 1998, the court dismissed all but four of the plaintiffs' counts.
The Action was then remanded back to State court. The remaining claims involve
allegations of breach of fiduciary duty, fraud and fraudulent inducement. The
Partnership and Mr. Sommer have filed a motion for summary judgment seeking to
dismiss all pending claims. That motion is still pending. The Partnership and
Mr. Sommer believe the remaining allegations are without merit and intend to
continue to vigorously contest the Action.
Item 2. Changes in Securities.
Not applicable.
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted to a vote of security holders during the period covered
by this report.
Item 5. Other Information.
Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
(27) Financial Data Schedule.
(b) No reports on Form 8-K have been filed during the quarter for
which this report is filed.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WESTMED VENTURE PARTNERS 2, L.P.
By: WestMed Venture Management 2, L.P.
Managing General Partner
By: Medical Venture Holdings, Inc.
General Partner
By: /s/ Stephen McGrath Executive Vice President
(principal executive officer) of Medical
Stephen McGrath Venture Holdings, Inc.
By: /s/ Ann Oliveri Fusco Vice President (principal financial
and accounting officer) of Medical
Ann Oliveri Fusco Venture Holdings, Inc.
Date: May 15, 1998
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM WESTMED
VENTURE PARTNERS 2, L.P.'S QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED
MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
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